Mergers in super – a rapidly changing landscape

Merger mania

The intense pace of mergers of super funds continues apace. Such is the volume, I now hear of concerns that merger mania could lead to reduced competition in a few years time! We’ve come a long way in just a few years, with a much more consolidated industry in sight.

Current drivers of mergers – first principles

From a first principles perspective, the key drivers are: what makes for better member outcomes for both merging entities? What is in members’ best financial interests? These have always been the core of every Super Fund Trustee’s raison d’etre, but their explicit inclusion in APRA’s SPS 515 Strategic Planning and Member Outcomes makes the objectives crystal clear, especially in the Outcomes assessment. I summarise the key drivers as:

  • Net investment returns (after fees and tax) – as high as possible
  • Fees – as low as possible
  • Member services – best value balancing needs, quality information and communication, and cost

How can mergers deliver these outcomes?

  • Scale
    1. Spreading the operational costs over more members and their funds under management should lead to a lower per member cost and related member fee(s).
    2. Investments opportunity – greater ability to influence and extract value for members in larger private unlisted investments especially, and more bargaining power in negotiating the best deals.
    3. Ability to invest capital to develop new or improve current administration including systems development.
  • Diversification
    1. Of members across industries and employers
      1. Reduces risk of total business change including member retention or levels of new membership from initiatives such as the stapling scheme.
      2. Reduces liquidity risk from initiatives that target release of funds, such as pandemic early release or first home buyer schemes
    2. Of investments that can assist risk-related returns.

Critical in any merger is culture. As Peter Drucker famously said – Culture eats strategy for breakfast. If a merger is going to be successful, the discussion must start with a strong desire and full acceptance of the merged fund’s target culture, reflecting the values on which both funds are agreed, and the strong governance which supports that, reflected from the Trustee Board Chair down throughout the organisation. Only then can scale and diversification work.

Current drivers of mergers – stakeholders’ behaviour

While the first principles above should be paramount in any merger decisions, the reality of any marketplace is that the players are all vying for the best strategic future for their organisations’ best outcomes.

APRA – The stakeholder with the current biggest influence on mergers is APRA. It’s strong messaging on the benefits of scale from merging and the forcing of some funds to find merger partners strongly relates to is drive improved member outcomes via SPS 515 and the performance tests. This pressure will ramp up further with the second Choice Product Heatmap publication later in the year. I don’t see the change in government altering this pathway.

Biggest funds – The Trustees of the biggest existing funds need to cement their place as the future “mega-funds” that have strong brand recognition, and thus attract and retain members across a wide range of industries, employers, and demographics. They will have sufficient internally generated capital for new initiatives to improve their members’ outcomes and access to the best local and global investment opportunities. Their interests lie in finding significantly sized merger partners and being able to efficiently add smaller funds with minimal marginal cost and distraction.

All funds – All funds need to have their defensive and offensive strategies and supporting data fully thought through, well documented, tested, and battle ready.

Small funds – Small funds need to be particularly ready so that they don’t miss out on the best merge opportunities for their fund – especially where there is deep historical tradition and loyalty. The merging process, from exploratory discussions to post implementation review, is harder and more time-consuming than most realise. No fund wants to be the junior partner in a fund merger more than once. Now is the time to be proactive so you’re not left behind when the music stops playing.

Current drivers of mergers – other influences

In addition to the APRA push for scale, two other new legislative requirements are increasing the urgency and importance of merging.

Stapling directly affects the ability of a fund to enrol new members. Funds who don’t capture new entrants to the work force will struggle to grow and will fall behind in relative size and capability, thus becoming more vulnerable to competition and will struggle to provide best outcomes for their members. The opposite strengthens their position as a merger lead or partner.

The introduction of Retirement Income Covenant from 1 July 2022 at last brings the provision of retirement income front and centre! This is what our industry needs to be focussed on, but Super funds’ implementation of retirement income strategies that provide a comprehensive range of options, including longevity solutions for their diverse membership, require capital and ongoing investment. Scale, depth of knowledge and specialist capability in this space are big attractions.

The Holy Grail of meeting member needs is the ability to engage and support every member as a cohort of one. To get there, or at least to get to small homogenous cohorts, requires large investment in digitisation strategies. This applies to specific needs, such as advice and insurance, as well as the more generic elements of fund balance, age, and other demographics. Big pockets are required to meet these needs to fund growth and retention.


Funds should reflect on the marriage liturgy section of the Book of Common Prayer in 1549 – “Speak now or forever hold your peace”. In merger terms, look long term, be informed, be active, be ready, and do it if that’s what’s best for your members.